Cable/Home Communication Corp. v. Network Productions, Inc.

• Decision Date: 04 June 1990
• Docket Number: A-C,89-5081,Nos. 88-5647,s. 88-5647
• Citation: 902 F.2d 829
• Parties: , 1990 Copr.L.Dec. P 26,588, 15 U.S.P.Q.2d 1001 CABLE/HOME COMMUNICATION CORPORATION, M/om, Inc., Home Box Office, Inc., and Showtime/The Movie Channel, Inc., Plaintiffs-Appellees, v. NETWORK PRODUCTIONS, INC. and Shaun Kenny, Defendants-Appellants. Bob Cooper, Jr., et al., Defendants.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 829

902 F.2d 829

59 USLW 2026, 1990 Copr.L.Dec. P 26,588,

15 U.S.P.Q.2d 1001

CABLE/HOME COMMUNICATION CORPORATION, M/A-Com, Inc., Home Box Office, Inc., and Showtime/The Movie Channel Inc., Plaintiffs-Appellees, v. NETWORK PRODUCTIONS, INC. and Shaun Kenny, Defendants-Appellants Bob Cooper, Jr., et al., Defendants.

Nos. 88-5647, 89-5081.

United States Court of Appeals, Eleventh Circuit.

June 4, 1990.

Lisa Bennett, Coral Gables, Fla., for defendants-appellants.

Lawrence G.D. Scarborough, Alan H. Blankenheimer, Phoenix, Ariz., for plaintiffs-appellees.

Appeals from the United States District Court for the Southern District of Florida.

Before FAY and KRAVITCH, Circuit Judges, and THOMPSON ^*, District Judge.

FAY, Circuit Judge:

This consolidated appeal presents the recurring problem of piracy of satellite television programming. Defendants-appellants helped to create, promote, distribute and import for financial gain various pirate, computer software chips and devices, which enabled display of plaintiffs-appellees' programming intended for their paying subscribers by disrupting the functioning of their copyrighted computer program designed to scramble satellite transmissions. Plaintiffs-appellees brought this action alleging violations of the copyright and communications laws. The district court granted summary judgment to plaintiffs-appellees and awarded them statutory damages and their requested attorneys' fees. In addition to appealing these rulings, defendants-appellants also appeal the district court's denial of their motion to dismiss for lack of personal jurisdiction and denial of their motion for extended time to respond to the summary judgment motion. After thorough review of the record, we affirm.

I. FACTUAL BACKGROUND

A. The Programmers

Plaintiffs-appellees Home Box Office, Inc. (HBO) and Showtime/The Movie Channel, Inc. (Showtime) provide pay television programming through electromagnetic signals via a communications satellite to subscription television services, such as cable television systems, and to individual subscribers. In order to prevent individuals who have not subscribed to their service from viewing their programming, HBO and Showtime use the VideoCipher TMII system to scramble or encrypt the audio and video portions of their satellite transmissions. Subscribers with satellite dish antennas use the VideoCipher TMII to decode programming for which they have paid. Upon a customer's payment of the subscription fee, the program providers cause the subscriber's VideoCipher TMII to descramble their programming.

The core of the VideoCipher TMII decryption technology is a computer program, Control Microprocessor Software (CMS), which is stored in a key integrated circuit, the U-30 chip, in the VideoCipher TMII descrambler module. Plaintiff-appellee M/A-COM, Inc. (M/A-COM) is the owner of two versions of the CMS computer program work registered with the United States Copyright Office under numbers TX1-952-652, dated December 18, 1986, and TX1-971-759, dated January 27, 1987. The copyright notice is affixed to the chassis of the VideoCipher TMII descrambler or to the integrated circuit board on which the U-30 chip is located, and a copyright notice is embedded in the CMS program itself. M/A-COM has authorized as its licensee plaintiff-appellee Cable/Home Communication Corporation (Cable/Home), a wholly owned subsidiary of plaintiff-appellee General Instrument Corporation. Cable/Home sells the VideoCipher TMII in Florida and elsewhere, with annual sales generating approximately $100,000,000.00.

B. The Pirates and Their Chips

Defendant-appellant Shaun Kenny is the president, sole director and shareholder of defendant-appellant Network Productions, Inc. (Network), a video producer. In addition to making video tapes for such uses as corporate seminars and legal depositions, Network produces a weekly news program, known as Boresight News (Boresight). This program, transmitted by satellite to the United States, Canada, Mexico and the Caribbean Islands presents industry news to satellite dish dealers, distributors and private owners. Producer Kenny has marketed Boresight as a consumer-oriented news program and has utilized the show to comment upon and to criticize the practices and products of programmers.

Following the advent of scrambling signals by programmers, Kenny decided that scrambled programming was not being offered to home satellite dish owners at a reasonable price competitive with those offered to cable television subscribers. He commenced an informative consumer campaign, which included discussion on Boresight as well as sales of devices designed to break or defeat the programmers' methods of scrambling signals. His alleged purposes in providing such information have been to instigate legislation protecting competition in the marketplace by insuring programming to consumers at a fair price and to show viewers that the VideoCipher TMII is compromised easily and, therefore, is a poor investment.

Integrated circuit chips, designed to replace the U-30 chip in the VideoCipher TMII and to alter the functioning of the VideoCipher TMII enabling a user to descramble encrypted pay television programming, are generally and collectively referred to as pirate chips. Two methods have been employed to utilize pirate chips: the "Three Musketeers" technique, whereby subscription to a single programming service, usually the least expensive, is used to access all other programming services without further payment or authorization, and "cloning," whereby multiple units are altered and linked so that any one unit subscribing to pay programming acts as the conduit for receipt of such services by all the units without additional payment or authorization. ¹ Kenny has testified that "[u]sing a pirate chip is totally illegal if you're receiving programming you're not paying for." ² With knowledge of the potential legal consequences, Kenny pursued his publicity and sale of pirate chips.

Kenny had another business known as Bag-O-Parts, which sold a kit used to decode the VideoCipher TMII by allowing users to unscramble video portions of scrambled transmissions to which they did not subscribe. During 1986, Bag-O-Parts not only was Kenny's sole source of income, but also supported Boresight for a time. Kenny profited $17,000.00 from sales of Bag-O-Parts.

Kenny advertised and promoted his Bag-O-Parts business on Boresight as well as the Dealer Demo chip, which also unscrambled the video transmissions of the VideoCipher TMII. This device, designed for dealers' showroom display, simultaneously overlays the middle of the screen with a solid black box, which allows insertion of a message. The Dealer Demo chip is an 86% copy of the CMS program of VideoCipher TMII and contains a copy of the M/A-COM copyright notice.

Kenny also publicized on Boresight a small plastic socket for insertion into the slot containing the U-30 chip to allow easy removal and insertion of the U-30 chip. Additionally, the socket "facilitates the --- the person to install a pirate chip" in place of the U-30 chip. ³ Because the process of inserting the socket into the VideoCipher TMII involved soldering, a procedure some individuals are unqualified to perform, Kenny offered the service of removing the U-30 chip and installing the socket for customers who sent their VideoCipher TMII circuitry boards to him for the procedure. Kenny advertised this service for $39.00 per unit, payable to cash. He boasted that this was another "way for Shaun to make money during all this," and even offered to remove the pirate chip and socket and to replace the U-30 chip if customers ever had to return their circuitry boards to M/A-COM because Kenny was "sneaky." ⁴

While these descrambling methods for video reception were profitable, Kenny recognized that the ability to unscramble both audio and video would be more valuable. ⁵ Kenny and former defendant Bob Cooper, Jr., a commentator on Boresight and publisher of Coop Satellite Digest, a publication similar in information and commentary to Boresight, became interested in a method to "break the VCII." ⁶ In approximately May, 1986, Kenny learned of the formation of DESUG (Data Encryption Standard Users Group), a group composed of individuals committed to breaking the VideoCipher TMII as an academic exercise. Through Boresight, Kenny collected funds and equipment for DESUG to enable the group to conduct their research. Kenny sent $1,250.00 to DESUG member and former defendant Stephen Bepko, who purchased a VideoCipher TMII and devised pirate chips for compromising M/A-COM's VideoCipher TMII. Bepko developed the Rabbit Writer and the Rabbit Video chips, respectively 94% and 98% copies of the CMS program within the U-30 chip, and used as his marketing name, Rabbit Trading Company.

DESUG member and former defendant William Ward requested money from Kenny for a computer and burner in order to make pirate chips to compromise the VideoCipher TMII system. Kenny ultimately sent Ward $900.00 with which Ward made a Three Musketeers chip, a 93% copy of the CMS program of the U-30 chip, to compromise the VideoCipher TMII. Ward marketed this chip under the name Comtech, Ltd. When Kenny learned that Ward intended to reduce the price on his pirate chip, Kenny informed Ward that he could not advertise his product on Boresight. Ward inferred that Kenny would denigrate his pirate chip on Boresight and interpreted Kenny's admonition as a definite "commercial threat." ⁷

In addition to publicizing and financially assisting the production of pirate chips on Boresight, Kenny also demonstrated the use of pirate chips on the show. On the December 4, 1986 show, for example, Kenny, Cooper and former defendant Karen Howes, a reporter and journalist on Boresight, discussed and demonstrated three pirate chips, two of the Three Musketeers type and one clone, which enabled the user also to receive the audio transmission on the...